New GAO Study About Conflicts of Interest and Impact on Retirement Plans
In his Congressional testimony, U.S. Government Accountability Office ("GAO") executive, Charles A. Jeszeck, describes a "statistical association between inadequate disclosure and lower investment returns." The stated premise is that pension consultants who fail to disclose their conflicts of interest could cost defined benefit plans in excess of 100 basis points if or until the situation is corrected. Conflicts can take many forms, including, but not limited to, business relationships between pension consultants and broker-dealers that question whether pensions are getting the best execution possible.
Though the research focused on traditional plans, the GAO suggests that "participants could be more vulnerable to potential adverse effects of conflicts of interest in DC plans such as 401(k) plans." The report cites one study that showed that "36 percent of responding sponsors either did not know the fees being charged to participants or mistakenly thought no fees were charged at all." Revenue sharing arrangements remain a mystery for some while others are unaware of "hidden" fees.
As the world awaits final proposals from the U.S. Department of Labor about conflicts of interest and disclosures, one ponders - How much disclosure will truly help save the day in terms of minimizing conflicts of interest that otherwise weaken the bond of trust between a plan sponsor and its service providers as well as the relationship between plan participants and sponsor?
Editor's Note: See "Testimony Before the Subcommittee on Health, Employment, Labor and Pensions, Education and Labor Committee, House of Representatives: Private Pensions - Conflicts of Interest Can Affect Defined Benefit and Defined Contribution Plans" by Charles A. Jeszeck, Acting Director, Education, Workforce and Income Security, March 24, 2009.
